Friday, August 11, 2006

Bill James for Nobel

In one sense, they always have; there’s always been talk about player salaries, and stadium deals, and luxury boxes, and profit and loss. But that’s the traditional part of economics, the money part. All that talk about employment and recessions and interest rates and GDP and stuff is pretty boring, even when the subject is sports.

The fun part of economics is the side that applies it to human behavior. Economist Steven E. Landsburg argued that all of economics is based on one principle: “people respond to incentives.” And there are all kinds of interesting non-monetary incentives out there.

For instance (as Landsburg explains in one of his books), you would think that the introduction of air bags and ABS in cars would reduce accidents. But accidents actually increased. The reason: with all the safety features protecting them, drivers have less incentive to drive carefully. And, more recently, Landsburg described a study describing how women respond to the incentives for faking orgasm.

As well, Tim Harford has explained why his favorite restaurant has an incentive to hire rude waiters. And in Freakonomics, famed economist Steve Levitt explains his academic finding that real estate agents get higher prices when selling their own houses than when selling their clients’ houses. Again, that’s because of incentives. For an equivalent amount of effort, they get to keep 100% of any their own price, but only 5% of their client’s price.

Until recently, there hasn’t been a whole lot of this kind of thinking applied to sports. The only older example I can think of is Bill James arguing in the 1985 Abstract that because of the low level of competition in the AL West, the teams there had less incentive to get rid of their mediocre players. After all, if 86 games is enough to win the pennant, there’s less need to take chances than if you need 95 games or more.

But now, the economic way of thinking is gaining ground. Levitt has written a paper on incentives to hit batters. This Levitt paper shows that when a third referee was added to college basketball, the number of fouls dropped (since the probability of getting caught increased) -- but when a second referee was added to NHL games, the frequency of penalties didn't change (because the probability of getting caught remained the same). And, of course, there’s this study on how Sumo wrestlers cheat when it’s in their interests to do so (see my summary here).

There’s also the field of “behavioral economics.” In one of my favorite chapters in “Basketball on Paper,” Dean Oliver talks about the famous “ultimatum game.” In that game, player A is given $10, and makes an ultimatum offer to player B about how to split it between them. If B agrees, the money is split. If B refuses, neither player gets anything.

In theory, A should offer B only a penny, and B should accept, since even a penny is better than nothing. But, in real life, players offered a penny (or even a dollar) refuse out of spite, feeling that fairness entitles them to a larger chunk of the $10.

Oliver parallels this game to a coach splitting playing time among his team. Players not receiving enough time (and glory) may rebel out of spite, putting in less effort and co-operation despite the negative effect it would have on their careers. The coach’s job, Oliver argues, is to manage the situation and keep players from feeling slighted by what is, in effect, the coach’s ultimatum.

So there’s three different aspects of economics so far – the boring money stuff, the fun incentive stuff, and the field of behavioral economics.

But now, there’s the possibility that economics may be branching into mainstream sabermetrics. “The Wages of Wins,” the recent book by three academic economists, starts out talking about salaries and attendance. But it quickly moves on to evaluating basketball players, and much of the book deals with formulas for measuring offensive productivity – no incentives, no dollar figures, just sabermetric analysis. I wouldn’t have expected this from economics, since it’s not about responses to incentives, but the internal details of how to measure output. It’s as if an economic analysis of outsourcing suddenly started talking about what kind of computers make your customer service representatives in India most productive.

But, having said that, is there any other academic field is most suitable for sabermetric work? Probably not. In terms of the actual nuts and bolts of sabermetrics, it consists of taking large databases containing the end results of human interactions, and trying to come up with theories and relationships that make the data meaningful. And that’s what economists do all the time. Whether it’s clutch batting statistics, accident rates with and without air bags, sumo wrestling decisions in different types of critical situations, or lists of real estate transactions in Chicago involving real estate agents’ own houses, the logic and math involved in doing the actual work are pretty much the same. If Retrosheet had decades worth of play-by-play traffic data instead of baseball data, sabermetricians could tell as much about the value of performance tires as they can about the value of a stolen base.

So if this is a real phenomenon, instead of just a fad, we will see economists getting more and more into sports analysis over the next while. And if that happens, and academia eventually accepts sabermetrics as a worthy and legitimate branch of economics, there’s a good chance that Bill James could be in the running for a Nobel.

No, seriously, I mean it. You’ve got to admit that the body of Bill’s work is an amazing intellectual achievement. Is it as good as other Nobel work? My uneducated impression is that it certainly is. All that’s left is for some Nobel field to encompass this area of study in its purview. And, now, there’s a small but real chance it could be economics.

The Bill James Nobel is a long shot, sure, but it’s not impossible. If someone offered me, say, 500 to 1, I’d probably take it.

We are publishing a new book next spring titled "How Bill James Changed the Way I View Baseball." It has longer essays by twelve great writers, plus short (300 words or less) comments by others. If you would like to contribute a short comment, send an e-mail to cfiore@actapublications.com and include your name, occupation and city. We assume the right to edit your comments and include them in the book with no payment.